International oil companies have been the main target of the global divestment movement. National oil companies on the other hand, are often spared, even though they have a higher carbon footprint on average.

Many universities have been targeted by the fossil fuel divestment movement. Image: Jonathan Brady/PA

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A global campaign encouraging individuals, organisations and institutional investors to sell off investments in fossil fuel companies is gathering pace. According to 350.org, US$11 trillion has already been divested worldwide.

But, while it may seem a logical strategy, divestment will not lower demand for fossil fuels, which is the key to reducing greenhouse gas emissions. In fact, it may even cause emissions to rise.

The argument goes that squeezing the flow of investment into fossil fuel companies will either bring their demise, or force them to drastically transform their business models. It makes sense for investors, too, as they avoid the risk of holding “stranded assets”—fossil fuel reserves that will become worthless as they can no longer be exploited.

For companies heavily invested in coal—the most polluting fossil fuel—this rings true. Although new coal plants are still being constructed in countries such as China, India and Indonesia, predictions by major energy agencies and industry alike indicate a steep decline in its contribution to the global energy supply.

With cleaner alternatives readily available, coal is no longer considered a safe long-term investment—and widespread divestment will only add to this sentiment.

As a result, the push for oil and gas divestment is likely to have unintended consequences.

Divestment troubles

The primary targets of the divestment movement are international oil companies (IOCs)—private corporations that are headquartered in Western countries and listed on public stock exchanges. ExxonMobil, Chevron, Royal Dutch Shell, BP, and Total are among the private oil “supermajors”.

Recent research suggests that divestment can reduce the flow of investment into these companies. But even if the divestment movement were successful in reducing the economic power of these companies, IOCs currently only produce about 10 per cent of the world’s oil.

The rest is mostly produced by national oil companies (NOCs)—state-owned behemoths such as Saudi Aramco, National Iranian Oil Company, China National Petroleum Corporation and Petroleos de Venezuela, located mostly in low and middle income countries.

This means that while global demand for natural gas and oil is still rising, and investments are insufficient to meet future demand, divestment pressures are unlikely to impact the business plans of NOCs. As a result, instead of reducing global fossil fuel production, the divestment movement will simply force IOCs to cede market share to NOCs.

IOCs are also generally better placed and more willing than are NOCs to reduce the carbon intensity of their products and support the transition to renewable energy. They have, for example, led the way among oil companies in research into capturing and storing carbon, even if results have so far proven elusive.

In a nutshell, the divestment movement will not reduce demand for oil and gas. It will transfer the supply of fossil fuel to companies that are more polluting, less transparent, less sensitive to societal pressures, and less committed to addressing the climate crisis.

Missing the mark

The divestment movement is understandably enjoying widespread appeal in a time of climate emergency. But by targeting the low-hanging fruit that are IOCs, the movement misses the more complex question of how to actually reduce the global demand for fossil fuels.

Such changes could also generate nearly US$3 trillion by 2030 for governments worldwide. These funds could be used to massively scale up renewables, prioritise the development of energy storage to address the intermittent nature of such power, and improve energy efficiency in industry, transport and housing—which will make fossil fuels increasingly redundant.

As for those with shares in fossil fuel companies: exercise your powers as a shareholder to pressure them to support the energy transition as constructively and ethically as possible. Your influence matters.

Stefan Andreasson is a senior lecturer at Queen’s University Belfast. This article was originally published on The Conversation.

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